Leadership - All posts tagged Leadership

What do bankers do to help a take-no-prisoners entrepreneur pass the reins on to their younger family members? If the clients are at Abbot Downing, a Wells Fargo unit for ultra-wealthy clients with $37 billion in assets, the bankers increasingly call Arne Boudewyn, head of the firm’s Family Dynamics and Education office.

Boudewyn, a clinical psychologist, works closely with super wealthy clients on their family governance issues; how to pass on wealth to the next generation in a healthy way; their interpersonal family relationships; and articulating the family’s long-term goals.

Most big banks have a Boudewyn on call – for good reason. Over the next 30 years or so, more than $30 trillion will pass from Baby Boomers to their heirs. If the bankers don’t bond with the young heirs and provide them with much-needed services at an early stage, then it is likely the next generation will simply walk from the bank as soon as the aging wealth-creator dies. With so much at stake, banks are getting better at proactively helping families resolve their interpersonal issues before a botched succession plan blows up everyone (including the banker).

Are there any truths universal to all collectors, no matter what they collect?

I’ve long pondered that issue, which is why Penta recently convened a panel of world-class collectors for a night of white wine and gab at the Bonhams auction house on Madison Avenue in New York. Our goal: have three wildly different collectors—in watches, wine, and fine-art photography—tell their personal stories about how they built their collections and, in the process, determine if there were any threads that stitched through all their stories.

There were several, but one theme in particular stuck with me. It is, of course, well known that hot passion is at the core of all great collections and collectors. The revelation was how the seeds of that passion are sewn in the first half of the collector’s life.

At the Van Andel Institute, a cancer research organization based in Grand Rapids, Michigan, impatience with the medical status quo is baked into its DNA. Currently, it takes ten years and a billion dollars to get a drug approved by the FDA, says David Van Andel, the institute’s chairman and CEO. That’s simply unacceptable, he says.

Which is why Van Andel has pushed his institute to focus on translational research, which aims to speed up the adoption of research from “bench to bedside.” The bulk of the institute’s recent work is in repurposing existing drugs for other uses, and on improving early diagnosis of deadly diseases. “I think [medical research] too often loses the human face and focuses too much on the science,” Van Andel says. “We forget that we’re dealing with life and death situations for people who depend on these treatments.”

He is not spouting public relations slogans. “David and I were married a year and a half, when he was diagnosed with testicular cancer,” says his wife, Carol. “At 24 years old, you think you’re pretty wise.” Since that terrifying diagnosis about 30 years ago, the couple, financially blessed, have devoted themselves to fighting cancer in all its guises. “We’re impatient because we know how important it is to find a cure as quickly as we can,” Carol says. And it helps, she says, that “this organization is being led by two people who have heard the devastating words ‘you have cancer.’ It’s that personal element that we know well.”

At an intimate event the other night at the Rubin Museum of Art in New York, a gaggle of wealthy individuals—ranging from Howard W. Buffett (Warren’s grandson) to Ron Cordes (co-­chairman of Genworth Financial Wealth Management)—sat down to sip wine and swap stories about their philanthropic efforts.

The evening was organized by the Wealth & Giving Forum, a small-scale peer-to-peer network that inspires wealthy folks to both give more and learn best practices from one another. The forum has been run since 2004 by Glen Macdonald, a Hillview Capital Advisor senior vice president. Macdonald, backed by ­fellow volunteers, essentially puts a small group of wealthy families and charismatic social entrepreneurs together in a room, and then lets simple storytelling do the rest

Howard W. Buffett, 30, is a professor at Columbia University’s school of international studies and public ­affairs, and the son of farmer-philanthropist Howard G. Buffett. The executive director of his father’s family foundation, Howard W. was a ­little stiff getting started. But he soon had us riveted as he talked openly about the guidance he and his father received from his grandfather, to “focus on few activities,” to “make an important difference” by meeting a need not addressed by others, and to be prepared “to make mistakes.”

Chris Hyzy, CIO of U.S. Trust, sees any overreaction to the Fed’s quantitative easing pronouncements – or, for that matter, any other unexpected curve balls coming over the plate — as a buying opportunity for his clients. Consider, he says, the 4% sell-off in the days following Fed Chairman Ben Bernanke’s June 19th press conference. Dovish statements by the Fed chief after the market close just two days ago have subsequently pushed the S&P back above June’s pre-selloff levels.

He is preaching to the choir. Back in May, U.S. Trust released a survey showing the wealth manager’s clients were finally shifting their priorities from “asset preservation” to “asset appreciation.” U.S. Trust, part of Bank of America (ticker: BAC), has since increased its recommended stock exposure to 51% equities and 21% fixed income. Last May, its call was 42% equities and 28% bonds. Hyzy sees the S&P 500 rising nearly 20%, to 1950, by the end of 2015.

“My advice to clients today is that we are at a major inflection point,” Hyzy explains, “We are switching from a low yield environment in which you could search for high yield and your portfolio would generally outperform.” Now, the market is moving to a rising, albeit low, yield environment, whereby the Fed plans to unwind, what Hyzy calls, “The Great Experiment.” Buying on those down days, when discussions of Fed tapering send the stock market into a swoon, provides a nice entry point for shifting from fixed income to equities. Hyzy further warns, “The interest rate risk of owning fixed income makes equities a better risk-adjusted proposition than adding risk in fixed income.”

The Swiss poet Johann Kaspar Lavater once said, “Never say you know a man until you have divided an inheritance with him.”

A similar truth can be said of the inheritor. Research conducted by Jay Zagorsky of Ohio State’s Center for Human Resource Research, found that half of all family wealth after an inheritance is badly spent or lost via investing. Other studies, like George Hester’s Family Wealth Counseling: Getting to the Heart of the Matter, show that as much as 70% of family inheritance is lost in the second generation, a figure that reaches 90% by the third generation.

Considering that aging baby boomers hold a third of the $64 trillion in total U.S. wealth, even a modest improvement in one generation’s ability to hold on to wealth has real consequences alike to the family and society at large. Perhaps that is why Citi Private Bank has, since 2002, tried to untangle the barbed wire on the inheritance frontier, by offering families with at least $25 million in assets a NextGen program.

Turning the Lavater remark on its head – by focusing attention on the recipient rather than the giver – Citi’s NextGen program tries to create a smarter breed of inheritors by proactively exposing them to the industry’s best practices before they are visited by the family windfall.

According to Robert Casey, senior research director at the Family Wealth Alliance, the annual cost of running a $100 million family office is as high as 1% of assets, or $1 million. That’s four or five times more expensive than the cost of operating a larger shop of, say, $1 billion.

As Penta first noted two years ago, compliance costs associated with the Dodd-Frank financial legislation was forcing single and multifamily offices to merge. That’s what it has done. The market for single family offices seems to have reached the mature stage, with no asset growth since 2005, while the average assets of a multifamily office have grown threefold to $7.4 billion.

Consider Threshold Group, the multifamily office that manages the money of the Russell Family. Threshold lowered its minimum account size to $5 million, allowing it to absorb smaller family offices and gain in the economies of scale associated with spreading costs across a larger group of clients. The rationale is simple, explains Richard Wilson, CEO of the Family Offices Group; at a certain level you might only need one or two more account managers to take on another billion dollars in assets.

How do you profitably invest in the veggie farms, grass-fed beef producers and artisan goat cheese-makers that make up the burgeoning local food system? When Woody Tasch, in 2008, published Inquiries into the Nature of Slow Food: Investing as if Food, Farms and Fertility Mattered, and launched the nonprofit Slow Money to help guide the flow of capital into small and local food enterprises, he did not have a clue. But he captured the zeitgeist.

Five years later, 650 farmers, ranchers, local food entrepreneurs, food activists and investors met at the fourth Slow Money Gathering in Boulder in late April, trying to better understand the economics of financially viable local farms. As Penta reported in its December cover story, “The New Philanthropists,” figuring out how to profitably integrate local, bio-diverse farms into food delivery chains is consuming many fine minds, including Microsoft millionaire, Narendra Varma; it’s wise to be aware of what is going on in this corner of the food and agricutlural industries.

Michael Brownlee, co-founder of Localization Partners, LLC, a Slow Money affiliate based in Boulder, said at the conference the food localization effort in Colorado is no longer about a “preferential lifestyle,” but rather about an economic development strategy for an agricultural state. Sounds a bit grand, but Denver’s Mayor Michael Hancock recently announced the city has an official food localization goal of 20% by 2020. Brownlee says Slow Money will be a key part of Denver’s strategy.

You have a great nanny who originally entered your home as an au pair from Ireland, stayed on in the U.S. past what her visa permitted, and you fell into the habit of paying her cash, on which you pay zero taxes and insurance fees. It’s bothered you for some time, but after a couple of high profile folk—Meg Whitman and, most famously, Zoe Baird—have publicly and painfully had their career paths derailed for doing something similar, you have finally woken up to the risk lurking in your household.

Fact: You are in violation of your state’s labor department, the Internal Revenue Service, and Homeland Security, subject to thousands of dollars in fines and back taxes.

This scenario, in one form or another, is amazingly commonplace. “Most people don't bother to comply with the rules, because it's a lot of work and because it's expensive,” says Valerie Adelman, CFP, a high-net-worth financial and tax planner in New York City.

Putting an employee on the books can up an employer’s costs on her or him by between 10 percent and 40 percent, especially if the employer raises the salary to compensate for the nanny’s hit from federal, state and local taxes, says Cliff Greenhouse, president of the New York employment agency Pavilion Agency and the Nanny Authority. His agencies make about 1,000 placements a year among wealthy families in New York, Florida, California, Illinois and Michigan and internationally.

The current rage for philanthropy is in danger of turning into a Pyrrhic victory for charitable causes. It seems that every public relations or marketing pitch I get these days has a bit of me-too philanthropy tacked on. Earlier this year I received a pitch for the “World’s First Philanthropic Vacation Club”. Overpay for your hotel rooms and this room aggregator will be able to “donate $1 billion to charity every 10 years” – or so the press release claimed. This pitch was promptly followed by a request I write about Cold-EEZE’s campaign, “Catch A Cause, Not A Cold.” It totally put me off my lunch.

We are witnessing, in full battle mode, what the writer Paul Theroux calls, “the Virtue Industry.” Philanthropic causes are ever more frequently hijacked for corporate marketing purposes, much to the damage of the charity championed and the brands thoughtlessly believing they are “doing good.”

What they forget: Wealthy families are the best detectors of BS, bar none, by virtue of the fact they are pitched all day long. Nothing will turn them off a brand or company more than a fig leaf of charity trying to disguise a transparent sales pitch. What they are looking for is authenticity, both in the brands they consume and the causes they back. An insincere “charitable” effort, obviously meant to benefit the company more than the cause, can irreparably damage the non-profit and the brand alike.

With this in mind, Barron’s Penta and the Luxury Marketing Council convened earlier this week a world-class panel of smart folk at the DiMenna Center in New York. The theme of the night was, “Authentic Philanthropy: The New Age of Corporate Giving.” On the panel were Page Snow, chief philanthropic officer of Foundation Source; Danny Meyer, the chief executive officer of the Union Square Hospitality Group; and Jasmine Audemars, chairwoman of the luxury Swiss watch brand, Audemars Piguet.

About Penta

Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Sonia Talati is Penta’s reporter about town, both online and for the magazine. She previously worked for the Wall Street Journal and various television station affiliates around the country. Sonia has a B.A. in economics from the University of California, Los Angeles, and an M.A. from Columbia University Graduate School of Journalism.